Another week, another message to startups that the good times are dead.
This time the message comes directly from the original authors of R.I.P. Good Times in 2008—Sequoia Capital.
The venture giant—known for investments in tech titans such as Apple, Uber, and Google—shared a 52-slide presentation with 250 founders on May 16 over Zoom that warned of a “crucible moment” of uncertainty for the venture market due to inflation, the markets and geopolitical issues, reported The Information, which also viewed the presentation.
Sequoia told founders not to expect a “swift V-shaped recovery like we saw at the outset of the pandemic,” and suggested extending the runway and examining their businesses for excess costs.
“Don’t view (cuts) as a negative, but as a way to conserve cash and run faster,” Sequoia wrote.
The Menlo Park, California-based firm has a habit of issuing warning signals to its portfolio companies. Aside from its 2008 slide presentation cautioning about the impacts of the global financial crisis, Sequoia also authored another missive in 2020 entitled, “Coronavirus: The Black Swan of 2020.”
It is interesting to note despite the warning, Sequoia is on pace to make more investments in the first half of this year than it did last year, according to Crunchbase data. In the first half of 2021, the firm placed 85 bets on startups, while it already has made 76 investments this calendar year.
Not new news
Sequoia becomes the latest big-name venture firm to send up red flags to its founders in recent weeks. Last week, startup accelerator Y Combinator issued a similar sentiment to its companies.
“No one can predict how bad the economy will get, but things don’t look good, ” YC wrote in a letter sent to its portfolio founders last week titled “Economic Downturn.” The contents of the letter were first reported by TechCrunch.
“The safe move is to plan for the worst,” the accelerator wrote.
Earlier in the month, SoftBank announced it will become much more selective in investments after it announced a loss of $27.7 billion on investments in its Vision Fund for its just-ended fiscal year.
That was all preceded by reports earlier in the year that large crossover firms such as Tiger Global and D1 Capital also were pulling back on late-stage investments.
The venture market has already shown some softness, falling quarter to quarter for the first time in Q1 2022.
The slowdown in the private market is a reflection of the decline of many tech stocks including Netflix and Meta in the public market. Those losses can make it harder for VCs to raise money from LPs, as well as lead some large growth firms to deploy their money in the public market instead of the private in search of bargains.
Added to the drop in the market are the ongoing issues with inflation, interest rates, and geopolitical unease that have all made venture dollars harder to come by.